What good are prisoners?

There are merchants in the taverns (they travel around so can't say what city you'll fine them in). You can sell them into slavery through them.

Not sure if it's in the original mount and blade, but some of the series has quests to take x number of enemy prisoners for lords.

Besides selling them to slaver "merchants" in taverns, you can offer your prisoners to join your army when making camp. Be aware that doing so will cause a hit to your army's morale, regardless of whether any of them will join your party or not. You can also let them go at any time from the party menu, as they slow your party down quite a bit, and the task of tracking down a slaver provides little gain for a lot of work.

If you capture an enemy lord (They are never killed in battle, but often escape instead of being captured after their force is destroyed), you may let him go and receive a relationship boost, or take them prisoner. Eventually their kingdom will offer you a ransom, however they will likely escape before that happens, unless you put them in a town or castle jail you own. Ransom offers for lords go well into thousands. Refusing a ransom offer provides the obvious benefit of keeping an enemy lord out of play, but makes you appear less chivalrous.